Investment behavior and investment aggregates during China's economic transition

In view of the peculiar patterns of investment ownership structure and special investment phenomena in China, the paper sets up formal dynamic investment behavioral models for state-owned enterprises (SOEs) and non-state-owned enterprises (NSOEs) under the background of full-dimensional and gradual economic transition. The models are based on two key points: entrepreneurs of SOEs have dual and changing operational objectives as the result of property-rights reformation; and dual-track approach of price liberalization process and reformation of financing system alters the actual user costs of capital goods. Analytical solutions are provided and it is shown that there exists a normative and unified explanation of the peculiar phenomena such as "investment deficiency" of NSOEs, "investment thirst", "investment inefficiency," and dual shrinkage of SOEs in both investment and output. Our research also sheds lights on evaluation of preceding reforms, understanding of SOEs' losses and bad bank loans. The paper partially justifies the property-rights-oriented reformation of SOEs.